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Facts
The assessee, a Co-operative Credit Society, earned interest income of Rs. 8,47,807/- from deposits in various co-operative banks. The Assessing Officer denied the deduction claimed under Section 80P for this interest income, treating it as income from other sources, which was subsequently confirmed by the Ld. CIT(A). The assessee appealed to the ITAT against this denial.
Held
The Tribunal, relying on judicial precedents from the Hon'ble High Court of Andhra Pradesh and Telangana and its own Pune Bench, held that interest income earned by a co-operative society from deposits made with other co-operative banks is eligible for deduction under Section 80P(2)(a)(i) and/or Section 80P(2)(d) of the Income Tax Act. Accordingly, the Assessing Officer was directed to allow the deduction for the interest amount.
Key Issues
Whether interest income earned by a co-operative credit society from deposits in other co-operative banks is eligible for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) of the Income Tax Act, 1961.
Sections Cited
250, 80P, 80P(2)(a), 80P(2)(a)(i), 80P(2)(d), 139(1)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC] passed u/sec.250 of the Income tax Act, 1961, for the A.Y.2018-19 dated 21.11.2024. The Assessee has raised the following grounds of appeal :
ITA No.2663/PUN/2024 [A]
“1. On the facts and circumstances of the case and in law the CIT(A), NFAC erred in confirming the action of the AO of denying deduction under section 80P in respect interest earned by the appellant society on deposits with other co-operative banks, rejecting all the above submissions of the appellant society: 1. The interest income of the appellant society being its income from business the same is eligible for deduction under section 80P(2)(a)(i). ii. The interest having been earned from other co-operative banks who are also co-operative societies and hence interest income earned from such co-operative societies is eligible for deduction u/s 80P(2)(d). iii. The appellant society ought to have been allowed deduction for total proportionate cost instead of only the interest paid for earning such interest income. The appellant prays that the AO be directed to delete the addition. The appellant craves leave to add, amend, alter, modify, delete or add a new ground of appeal before or at the time of hearing.” Submission of Ld.AR:
2. At the outset of hearing, no one appeared for the assessee. Case was called twice. No adjournment letter has been filed.
Submission of Ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Findings and Analysis: 4. We have heard ld.DR for the Revenue and perused the records. As per the Assessment Order, Assessee is a Co-operative Credit Society registered under Maharashtra Co-operative [A] Societies Act, 1960 with the object of inculcating habit of self-help and cooperation among the members, accepting deposits and providing credit cooperative society and employees are from irrigation department and nearby nagarpalikas and pradhikarans etc. The assessee has filed its return of income electronically for the year under consideration on 27.07.2018 showing gross total income at Rs.45,51,852/- thereby declaring NIL taxable income.
4.1 The Assessing Officer in the assessment order noted that assessee has earned income of Rs.8,47,807/- as interest income from Dena Bank, Kolhapur District Central Co-operative Bank, Rajashri Shahu, Government Servant Co-operative Bank- Kolhapur. The Assessing Officer in the assessment order held that interest income of Rs.8,47,807/- is not eligible for deduction under section 80P of the Act and treated it as income from other sources. Ld.CIT(A) confirmed the assessment order.
4.2 Thus, it is an admitted fact that assessee is a Co-operative Credit Society, registered under Maharashtra Co-operative Societies Act, 1960. Assessee had filed return of income under section 139(1) of the Act. In the assessment order, Assessing [A] Officer had allowed deduction of Rs.37,04,045/- under section 80P(2)(a) of the Act. The AO has not allowed the deduction under section 80P of the Act, for the interest of Rs.8,47,807/-.
4.3 Thus, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks & Banks or not! 4.3.1 This issue has been dealt in various decision of ITAT Pune in favour of assessee.
The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. [A] …………………… 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.”Unquote. [A] 5.1 Thus, the Hon’ble High Court of AP &TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 6.1 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA [A] No.644/PUN/2024 dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
7. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest amount of Rs.8,47,807/-. Accordingly, the only Ground raised by the Assessee is allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 27th January, 2025.